Industry study predicts Gulf drilling plummet from safety rule

Under a proposed federal rule designed to prevent a repeat of the Deepwater Horizon oil spill, exploratory drilling in the Gulf of Mexico would decline 55 percent, according to a study released today by a Louisiana-based industry group.

Announced last April by Secretary of the Interior Sally Jewel, the rule would tighten standards on blowout preventers – the device that failed in the case of Deepwater – as well as put more controls on how companies drill and monitor wells deep under the surface of the ocean.

The study released Monday by the Gulf Economic Survival Team – founded by Louisiana Governor Bobby Jindal in 2010 in response to a post-Deepwater drilling moratorium in the Gulf of Mexico – and the consulting firm Wood Mackenzie, predicts the rule would raise drilling costs to such a degree it would push many offshore rigs out of the area. It forecasts a 35 percent drop in oil production from the Gulf by 2030, resulting in more than 100,000 jobs lost, mostly in Texas and Louisiana.

“It is important that we conduct further study of the finer points and practical effects of this new rule before forcing it on companies engaged in operations in the Gulf. Our nation as a whole would feel the impact of reduced domestic energy production stemming from this rule, with a particularly harsh blow to Gulf energy-producing states,” said Lori LeBlanc, Executive Director of the Gulf Economic Survival Team.

With review at the Department of Interior completed, the rule is readying for final analysis by Office of Budget and Management, after which it would be published in the federal register and go into effect within 90 days, according to the Bureau of Safety and Environmental Enforcement.

The rule has drawn deep criticism from industry, who says it will stifle innovation and actually increase risk for drilling workers offshore.

During a hearing in the senate Energy and Natural Resources Committee in December, members were divided, pitting those who argue for the need to protect the country’s seas against those who say the cost to the country’s energy industry is too great a toll.

“Since 2010, there have been 23 separate ‘loss of well control incidents’,” Sen. Maria Cantwell, D-Washington, said in the hearing. “We can’t afford this kind of risk,”

Determining the cost of the rule itself is a cause of divide. BSEE estimates the reduction in oil spills and offshore accidents would actually create a net benefit of more than $650 million over ten years.

“There will be some costs [for drillers],” said Gregory Julian, spokesman for the bureau. “But the standards are already being implemented by many of the operators – just not all of them.”

The Wood Mackenzie study was based on an $80 price for crude oil. The U.S. benchmark West Texas Intermediate was trading around $32 a barrel Monday.

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